What is the default assessment and how will it impact you.
The ATO has a wide range of options and strategies to ensure taxpayers lodge their tax returns or activity statements on time. When these attempts of contact and cooperation fail, the ATO must turn to issuing a Default Assessment for the period.
A default assessment for an overdue tax returns is calculated based on information the ATO has access to from third party's (i.e. PAYG Summaries, bank interest, etc).
However, you are unable to claim any deductions you normally would have access to have the tax return been prepared on time. This naturally increases the amount of tax liability of the return.
The ATO will also issue a penalty for the Default Assessment, being an additional 75% of the tax liability. The ATO may also issue a late lodgement penalty.
You will normally receive a warning letter before the Default Assessment is issued. This gives you a chance to lodge your overdue returns with the benefit of deductions (but you may still be issued ATthe late lodgement penalty).
If you receive a Default Assessment, there are 2 options available:
Pay the amounts the ATO has imposed.
Lodge an Objection to the Default Assessment or associated penalties. (In the objection you must list in detail your circumstances and why a Default Assessment was made in error. There is no guarantee this will be successful however).
Given the magnitude of penalties associated with a Default Assessment, it is always best to avoid getting to this point.
When the ATO/tax agent contacts you regarding an overdue tax obligation, the sooner the return/BAS is lodged the better it is for your compliance and wallet.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice